Research

A. WORKING PAPERS

”Distributional Imbalances and the U.S. Business Cycle” [Job Market Paper, updated Jan. 21st],[Link To WP]Summary:This paper explains the U.S. business cycles from 1954 to 2009 through the lens of a proposed, and estimated with Bayesian mixed-frequency techniques, New Keynesian DSGE model featuring cyclical interactions among macroeconomic conditions, household debt, and distributional imbalances in income and wealth. Top and middle- class agents with heterogeneous Marginal Propensities to Consume cannot fully insure themselves against seven aggregate shocks and three “distributional” shocks generating dispersion in wages, wealth, and credit availability across agent groups. Distributional shocks, explaining two thirds of income and wealth inequality swings, are diffused through aggregate demand and have limited influence on output cycles. Nevertheless, they account for a sizable part of debt fluctuations. Given the pro-cyclical inflation response to them, aggressive monetary policy remains effective. Their effect is increasing in the degree of credit market imperfections. A third of the swings in income and wealth inequality emanates from aggregate disturbances.

”The U.S. Labor Income Share and Automation Shocks”,[Link To WP]Summary: The causes and consequences of the 1964–2016 swings in the U.S. labor income share (LS) are parsed through the lens of a medium-scale structural model augmented with production automation disturbances, and estimated on aggregate and LS series jointly. Automation and wage markup shocks account for 31% and 62% of the long-run LS swings, respectively. The influence of disturbances associated with investment and its relative price is attenuated when the model is disciplined to match the counter-cyclical LS. Automation shocks explain the lion’s share of the post-2000 LS tumble and 9% of long-run output cycles, and entail a distinctive counter-cyclical labor response.

”On Unemployment and Wage Cycles: Euro Area, 1999-2016”,[Link To WP]Summary: Unemployment and wage fluctuations in the Euro Area and the southern periphery are jointly examined through the lens of a structural model, estimated on several wage series and by applying an efficient treatment of the state space dimensionality. Exogenous shifts in labor market competitiveness determine long-run unemployment cycles, but their short-run effect depends on the unemployment–wage comovement: the stronger the comovement – as it is in the Euro Area, Portugal and Spain compared to Greece and Italy – the lower their fefect. Those shifts become prominent during the Great Recession when the comovement weakens, and are catalytic in the subdued wage growth during the recovery.

”Wages During Recoveries in the Euro-Area Economies. A Structural View”,[Link To WP]Summary: This paper examines the drivers of wage growth during economic recover- ies since the 1990s in the big four European economies. It adopts a structural approach involving Bayesian estimation that features several measures of wage inflation. The findings suggest a cyclical real wage recovery in Germany after the sovereign debt crisis that is statistically different from the past and is driven by a weakening in firms’ pricing power despite a productivity slowdown. In contrast, a cyclical (real) wage-less output recovery is observed in France and Italy. In France, the productivity slowdown dominates the weakening in firms’ market power. In Italy, the latter effect along with a demand pick up boosting wages do not suffice to exceed the weakening in workers’ market power. In Spain, cyclical wage growth is positive – the sizable weakening in firms’ pricing power and rising demand exceed the weakening in workers’ market power over wages – only in real terms and not in nominal terms, highlighting the importance of jointly examining price and wage inflation.

”Evolving Beliefs and Animal Spirits in the Euro Area”, (with F.Milani)[Link To Slides], [Link to WP, TBA]Summary:We examine the presence of waves of unjustified optimism and pessimism (animal spirits; AS) in the euro-area economies before and after countries joined the Monetary Union (MU). We present and estimate a model for a small-open economy entering a MU. The assumption of rational expectations is relaxed. Observables for private-sector expectations, collected from professional forecasters, help us identify agents’ near-rational learning process and extract animal spirits. We find that AS play a significant role in the euro-area economies. In the pre-MU period, AS about exchange rates matter in creating short-run volatility. In the post-MU sample, they become tamer in core economies.

B. PEER-REVIEWED PUBLICATIONS

”The National Wealth-Income Ratio in Greece, 1974-2013”, The Review of Income and Wealth, 64 (1), 2018.[Link to Publication] , [Link to WP] , [LinktoAppendix]Summary:Can the rise of wealth–income ratios observed in rich economies be found in the case of Greece as well? This paper uses a generalization of a two-good wealth accumulation equation to estimate the evolution of the national wealth–income ratio, and finds that, similarly to the European evidence, the ratio rises from about 280 percent in the 1970s to about 500 percent on the eve of the current financial crisis. On average, during 1974–96, the saving-induced wealth growth cancels out the capital losses, whereas in the subsequent decade, 1997–2007, the balance changes considerably when the saving effect vanishes and the prolonged capital gains result in a rising wealth–income ratio. During the recession, income falls faster than wealth. The results remain robust to several alterations of the benchmark framework.

C. CONTRIBUTION TO INTERNATIONAL DATABASE

World Wealth & Income Database, [Link To Database]
all Greek wealth series stem from my work in ”The National Wealth-Income Ratio in Greece, 1974-2013”.